(Appendix 8C)Gutshall Corporation Is Considering a Capital Budgeting Project That

Multiple Choice

(Appendix 8C) Gutshall Corporation is considering a capital budgeting project that would involve investing $240, 000 in equipment with an estimated useful life of 4 years and no salvage value at the end of the useful life.Annual incremental sales from the project would be $580, 000 and the annual incremental cash operating expenses would be $430, 000.A one-time renovation expense of $70, 000 would be required in year 3.The project would require investing $10, 000 of working capital in the project immediately, but this amount would be recovered at the end of the project in 4 years.The company's income tax rate is 30% and its after-tax discount rate is 13%. The company uses straight-line depreciation on all equipment.
The income tax expense in year 3 is:

A) $6, 000
B) $45, 000
C) $21, 000
D) $27, 000